NCL says presence in Hawaii’s waters at risk

Company views cruise ship rule change as essential for staying in isle market

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NCL America says that even after cutting its Hawaii-based fleet from three ships to one, it needs more state support for a federal rule change to insulate it from competition by foreign-flagged ocean liners.

Removing the Pride of Hawaii and Pride of Aloha from interisland service will reduce overcapacity here, but NCL executives say foreign competition has quadrupled since it began operations in 2004.

Members of Hawaii's Congressional delegation, but not Gov. Linda Lingle, are backing a rule change that would rein in foreign-flagged vessels. NCL executives say that without broader state support, even its reduced presence in the state is not a given.

NCL America is at risk of leaving the Hawaii market unless federal rules are changed to provide more protection from foreign competition, the company's top official said yesterday.

At issue is the U.S. Customs and Border Protection's proposed interpretive rule change to the Passenger Vessel Services Act, which governs cabotage -- how and when foreign-flagged ships may transport passengers between U.S. ports.

While the state's Congressional delegation supports the rule change, NCL executives said yesterday they take umbrage at public opposition by Gov. Linda Lingle and top state tourism officials.

"The focus in Hawaii should be on making sure that our one ship remains here," said Colin Veitch, NCL's president and chief executive officer.

Despite NCL's announcement Monday that its decision to cut its U.S.-flagged fleet by two-thirds would restore profitability, the company's future in Hawaii has been uncertain for some time. Last August, NCL's parent, Hong Kong-based Star Cruises, obtained a $1 billion cash infusion from U.S. private-equity firm Apollo Management in return for turning over 50 percent ownership of NCL.

NCL sent Pride of Hawaii, the newest member of its fleet, to Europe this month and created further angst a few days ago when it announced that it would also withdraw Pride of Aloha from the Hawaii market and send it to Asia.

Now, the company is appealing to Hawaii officials to change their stance on the proposed rule change, but efforts have met with resistance, Veitch said.

"No one has taken seriously enough that ships once here can go away again," he said.

Rex Johnson, president and chief executive officer of the Hawaii Tourism Authority, said that state tourism officials do want NCL America's U.S.-flagged operation to succeed, but the state's visitor industry depends on a healthy and diversified tourism product.

"We want both parts of the cruise ship industry to feel very comfortable coming to Hawaii," Johnson said.

If the federal government adopts the proposed rule change -- which would require foreign-flagged ships to stop at least 48 hours in a foreign port before proceeding to Hawaii -- local officials believe that it will hurt Hawaii's foreign-flagged cruise market, Johnson said.

The rule change could potentially make it more inconvenient for travelers aboard foreign-flagged ships to explore the Hawaiian islands.

In a December letter to Customs and Border Protection, Gov. Lingle recommended that in any PVSA rule change there should be "no minimum port-of-call time at an international destination as part of the cruise itinerary and no mandated percentage of stops that restrict or affect the manner in which ships are scheduling calls to Hawaii."

Based on 2006 data, Lingle has estimated that the impact of all international cruise ships leaving Hawaii would result in the loss of $279 million in economic benefits and 1,447 jobs.

Veitch said yesterday, "Any one of our ships would be three and a half times more valuable economically than the entire foreign fleet that everyone is getting exasperated about."

Hawaii tourism officials have said that they don't want to see rules that help NCL America grow at the expense of wreaking havoc on Hawaii's burgeoning foreign-flagged market.

"At the end of the day, we think that there is room in this market for both U.S.-flagged and foreign-flagged ships," Johnson said. "If foreign-flagged vessels provide that much competition in this marketplace for NCL America, they'll have a problem no matter what the law says."